As Summer Heats up, Reefer Shipments Rise
Summer shipping means dealing with unique seasonal challenges like heat. So as summer heats up, reefer shipments are becoming increasingly in demand throughout the supply chain.
Reefer freight shipments refer to temperature-controlled, refrigerated freight. Any and all products that require cool temperatures require refrigeration so they don’t spoil or get damaged. This includes shipping for agricultural products like food and beverage, hazardous chemicals, pharmaceuticals, and more along with the distributors, and carries of these products that require a temperature-controlled environment for any stage of their shipping process.
Reefer shipping is an essential part of our supply chain, but it does come with unique challenges. In this blog post, we will break down everything you need to know about reefer shipping, so you can be well informed as summer gets into full gear.
Growth in Reefer Shipping
According to the Reefer Container Market Research Report published in February of 2021, the size of the global reefer container market as of 2019 was 2,915.6 thousand twenty-foot equivalent units (TEU) and is expected to have a compound annual growth rate (CAGR) of 8% from 2020 through 2030. Therefore, they expect the global reefer container market size to reach 7,063.3 thousand TEU by 2030. Although much of this growth will be compromised by a growth in reefer shipping in seaways, truckload reefer shipping is expected to grow as well.
What’s Causing the Increase in Reefer Shipping?
Implementation of new technology is one reason for an increase in reefer shipping, and a more accessible nationwide supply chain. Using advanced GPS tracking systems in their truck fleets and cargo fleets, supply chain companies become more efficient. Additionally, they are better able to drive prices down, making a wider range of products more accessible to a broader audience.
In addition to various advances in supply chain technology, the rise in popularity of the e-commerce industry has greatly increased all types of shipping, reefer shipping included. Now, thanks to the popularity of businesses like Amazon, customers can order almost any product straight to their door.
Also, reefer shipping in the U.S. is a seasonal business, meaning that demand for refrigerated shipments increase in the summer as temperatures rise.
What’s Driving Rising Reefer Shipping Costs?
Increase in Demand
The increase in demand for reefer shipping is a big factor when considering the increase in costs. During the pandemic and even now, as people were on lock-down at home or saving money on their usual expenses, the e-commerce industry boomed.
In some cases, the demand increased too much for the supply. The result was not enough inventory, too few employees, and other disruptions in the supply chain.
Increase in Competition and Supply Chain Disruptions
According to Drewry’s Reefer Shipping Annual Review and Forecast 21/22, reefer freight rate inflation has increased in part due to dry freight BCOs for containers. In addition, supply chain disruptions related to reefer shipping containers further drive reefer freight shipping inflation rates. According to their data, rates increased by 32% in Q2 of 2021.
Fuel prices have impacted every part of the supply chain, especially reefer shipping. Refrigerated trucks require diesel to get them from point A to point B. However, they also rely on fuel to keep their containers temperature-controlled.. According to the U.S. Energy Information Administration (EIA), in 2021 the average diesel price was $3.287 per gallon, and in May of 2022, the average price was $5.571 per gallon.
Reefer Load-To-Truck Ratio
When looking at demand and truck capacity, the load-to-truck ratio is an invaluable number to examine. High load-to-truck ratios cause higher freight rates, stalled shipments, and other disruptions.
In 2019, before the pandemic and the supply chain disruptions we are currently facing, the national reefer load-to-truck ratio averaged 4.09 for the year. Two years later in 2021, the average was 12.47.
Furthermore, January 2022 saw an all-time-high compared to recent years of a load-to-truck ratio of 20.43. While that number has come down, it may bounce back up as demand rises as summer temperatures rise.
Although many businesses rely on reefer shipping year-round, reefer shipping is especially important during the summer months as temperatures increase. A popular way to analyze the supply and demand of reefer shipping is by looking at the spot rate.
In August 2019 the National reefer spot rate was $2.15 per mile. The spot rate hit 1.93 in April of 2020, topped at 3.59 in January of 2022, and is still at 3.4 in March.
Spot rates are used for a number of reasons. Primarily, the reason is that their usual carriers can’t cover a shipment, there isn’t enough freight for a contract shipment, or there is an unexpected shipment. In other words, when primary carriers and contract shipments can’t be justified then businesses use spot rates.
This is a good indication that traditional carriers cannot meet the rising demand and need to increase their spot shipments.
Summer reefer shipping comes with the usual challenges of seasonal demand and summer maintenance. However, the supply chain continues to see disruptions and demand for goods remains high. Consequently, summer 2022 may present a particular challenge for reefer shipments as companies compete for containers and face new challenges.